Never Judge a System on a Long Streak—Winning or Losing

12/28/2015 9:00 am EST


David Rodriguez

Quantitative Strategist,

Citing a real world example to illustrate his point, David Rodriguez, of, details how emotions and his overreliance on the equity curve made for some fairly significant losses in 2015 but how this served as a costly lesson in trading discipline.

As 2015 comes to a close I’m happy to report that I successfully learned from my biggest mistake last year, less is often more and trading is no exception. I played to my strengths and did virtually all of my trading via low-intervention algorithmic trading systems. But trading is an iterative process and switching my methods exposed another issue. I kept my emotions away from single trade decisions, but emotions can (and did) get in the way of making sound strategy selection decisions all the same.

I’ve devised a number of techniques for selecting trading strategies at any given time, but at the end of the day it’s clear I’m not immune from a beautiful equity curve. This is exactly what happened with one of our volatility-friendly trading systems headed into the European Central Bank interest rate decision on December 3.

There were a number of reasons to believe that the system would continue to do well in the EUR/USD, but I knew the event risk was substantial and I would typically reduce leverage ahead of big news events. My overreliance on the equity curve made for some fairly significant losses. I kept the system active at normal trade size and a substantial EUR/USD reversal erased roughly four months of trading gains for this strategy in the EUR/USD.

It was easy to see how the allure of the beautiful equity curve clouded my judgment and this ended as a costly lesson in trading discipline. Of course, if I take the implications to heart it should pay for itself in the future.

By David Rodriguez, Quantitative Strategist,

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